Hey Bresco! So you can't adjudicate when in liquidation?

The TCC has released a significant judgement, which puts a different complexion on adjudicating when in liquidation and associated issues with enforcement.

Bresco Electrical Services (Bresco) were engaged by Michael J Lonsdale (Lonsdale) to perform electrical installation works under a construction contract. Bresco left the site in 2014 in controversial circumstances, with both sides unsurprisingly alleging wrongful termination. Bresco commenced Adjudication against Lonsdale in June 2018 on various points, which included a financial claim. Unsurprisingly there was a counterclaim.

The context of an adjudicator's decision is important – as we all know, it is binding on an interim basis only. The previous position was that at party in liquidation could adjudicate but would face difficulty on enforcement, based on a risk that it might not be able to repay the judgement if the decision was successfully overturned.

Lonsdale invited the Adjudicator to resign on the basis of jurisdiction, due to Bresco having become insolvent and placed into liquidation. The Adjudicator refused and Bresco carried on.

Lonsdale then issued Part 8 proceedings for an injunction to stop the adjudication. Mr Justice Fraser agreed on the basis that, once a company has entered liquidation, Rule 4.90 (at the time and now Rule 14.25) of the Insolvency Rules on mandatory set off bites; the result of which is that all monetary claims under contract or otherwise are replaced with a single claim for the net balance taking into account all mutual dealings between the parties meaning that multiple contracts may need to be taken into account (such an exercise not being possible in an Adjudication). Consequently, Mr Justice Fraser concluded that the dispute could not be determined by an Adjudicator.

Bresco seems therefore, at a first glance, to put a blanket prohibition on the right of a party in liquidation to adjudicate if the relief sought includes payment of a sum of money. The decision does not appear to prohibit non-financial claims, which would not in theory be subject to set off.

For parties who have contracted into dispute resolution clauses that only allow Adjudication in the first instance their right of recourse will now be in the insolvency court under the Insolvency Rules that allow for challenge of a rejection of a proof of debt meaning that the specialist knowledge of the adjudicators on matters of standard construction issues may not be on hand.

It is worth note that the insolvency set off provisions apply also to bankruptcy of individuals and administration of companies so by analogy the principles set out in Bresco must apply equally to those insolvency processes. However beware that the trigger point for the application of insolvency set off is not the same in administration as liquidation. Arguably adjudication would technically be available up until that point but we suspect that remains a question to be argued.